LEGAL ISSUES FOR AMCS
AND THEIR CLIENTS
C. Michael Deese
Howe & Hutton, Ltd.
Washington, DC
February 15, 2013
cmd@howehutton.com
AMC ISSUES TO BE
ADDRESSED

ACCREDITATION UPDATE
 EMPLOYEE HANDBOOK
“CONTRACTS”
 AVOIDING CLIENT TRANSITION
PROBLEMS
– Incoming
– Outgoing
CLIENT ISSUES TO BE
ADDRESSED

NONPROFIT CORPORATION LAW
CHANGES
 HANDLING DIRECTOR CONFLICTS OF
INTEREST
 USE AND MISUSE OF BOARD
EXECUTIVE SESSION
 CHAPTER RELATIONSHIPS
 ANTITRUST DEVELOPMENTS
ACCREDITATION UPDATE

AMCI’s ANSI standard being revised
– Canvass process almost complete

Changes could be effective by mid-year
– Applies to new accreditation and
reaccreditation after effective date
ACCREDITATION UPDATE

Changes to the standard include:
– 3.1: Written contract with clients required; not
just whenever feasible
– 3.6: Client contract must address client and
AMC IP rights re materials and software
systems
– 4.6: AMC must have a policy for advising
clients regarding protection of client IP
ACCREDITATION UPDATE

Changes to the standard include:
– 4.7: AMC must have written social media
policies for AMC and clients
– 6.7: If AMC recommendation to client board
regarding CGL and APL insurance is declined,
must be recorded in board minutes
– 10.6: AMC must disclose conflicts of interest
regarding purchases with client funds
ACCREDITATION UPDATE

Changes to the standard include:
– 11.1: Record retention policy specifically
applies to electronic records as well as hard
copy documents

Not a change, but important:
– 11.3: AMC must have written business
continuity plan (data back-up; communication
plan; evacuation plan; alternate site)
ACCREDITATION UPDATE

AMCI Best Practices Document
– Revised February 9, 2011
– Goes well beyond ANSI Standard
 Identifies substantive issues with which an AMC
owner is expected to be familiar
 Client relations; financial management; technology;
human resources; legal; business leadership
(running your AMC)
EMPLOYEE HANDBOOK
“CONTRACTS”

December 2012 Illinois federal court
decision
– Employee handbook disclaimer (“handbook not
an enforceable contract, may be changed at any
time by employer, etc.”) may not always be
effective
– Handbook terms may be an enforceable
“agreement,” even if not a contract, as long as
in effect
AVOIDING TRANSITION
PROBLEMS

Plan in Advance
– Address incoming transition in response to RFP
and in management agreement
– Address outgoing transition in management
agreement

Required by ANSI standard (3.5)
INCOMING TRANSITIONS

Should be part of your response to an RFP
– Avoid tortious interference claim

Also address in management agreement
 Requires outgoing management cooperation
 More than a checklist
 Transfer of functions over time
– Does not happen all at once
INCOMING TRANSITIONS

Due diligence before deciding to take on new
client requires inquiry regarding:
– Corporate good standing in appropriate jurisdictions
– Tax filings up to date
– Pending or threatened lawsuits
– Insurance in place
– Accurate picture of staff hours expended
– IT compatibility/difficulty (website; database and files
within database; conversion of financial history)
INCOMING TRANSITIONS

Transition fees are important
– Determine current management “attitude”

Incoming transition fees should reflect:
– Services almost always more than expected
– Underbidding leads to understaffing and level of
service below what is required
– Inadequate service leads to client dissatisfaction

Client should expect to pay 2 AMCs during
transition
INCOMING TRANSITIONS

Dealing with uncooperative current
management
– Personal relationships with management and IT
provider can be helpful
– Using “back door” to obtain client data
– Using legal counsel as a last resort
OUTGOING TRANSITIONS

Address in management agreement
– Termination notice provisions (90-120 days)
– AMC service through termination date
– Client payments through termination date
– Anticipate need for a transition agreement

BE “NICE”
OUTGOING TRANSITIONS

Transition Agreement
– Transfer of management functions over time

Document everything transferred (3.5.1.)
– Retain financial responsibility until specified date

Audit upon conclusion (3.5.6.)
– Transition services description and fees
– Guaranteeing payment to AMC



More difficult if client controls funds
Separate account for management fee funds
AMC taking funds in advance
OUTGOING TRANSITIONS

Avoid losing clients to employees
– Law varies by state
– Address in employment agreement or handbook

Consideration and signature required
– Non-compete vs. client specific restriction

Must be reasonable
– Restriction upon use of confidential information


Define what is confidential
Easier to enforce than non-compete
– Address in client contract (“no raid” provision)
NONPROFIT CORPORATION
LAW CHANGES

Vary by jurisdiction
 Jurisdiction of client incorporation governs
 Major types of changes include:
– “Default” provisions (notice, Board terms,
power to amend bylaws, etc.)
– Limitation of liability of volunteers if so
provided in Articles of Incorporation
NONPROFIT CORPORATION
LAW CHANGES

Major types of changes include:
– Notice of meetings, elections and board
unanimous written consent now permitted
electronically almost everywhere
– Board action by email now permitted in CO,
GA, ND, TN and WI
– TX allows a non-voting director to serve
without having fiduciary duties
NONPROFIT CORPORATION
LAW CHANGES

AMC should undertake a review of client
organizing documents to determine whether
changes in applicable law permit articles or
bylaw amendments that would be beneficial
to the client
HANDLING DIRECTOR
CONFLICTS OF INTEREST

Clients should have COI Policy and required
disclosure
– To whom does COI Policy apply?
– Include instruction in new director orientation
– COI is OK; undisclosed COI is not
– Disclosure annually plus as a conflict arises
– Logistics of disclosure process important

Director personal liability for approval of
interested party transaction (New York case)
BOARD EXECUTIVE SESSION

What do we mean by “executive session”?
– Open vs. closed board meetings
– Executive docket

Executive session at every board meeting or only
when necessary
– Who remains in the board room?
– Appropriate topics (COI, AMC contract)
– How to go into executive session

Danger of misuse, particularly in trade
associations in concentrated industries
CHAPTER RELATIONSHIPS

To incorporate or not to incorporate
– Effect upon chapter officers and directors
– Worst case: unincorporated, separate entity

How to minimize national liability for acts of the
chapter
– Treat as part of the national (assume responsibility) and
control activities tightly
– Treat as separate entity without actual authority and
minimize apparent authority (require disclosures)
CHAPTER RELATIONSHIPS

Evaluate insurance coverage under
national’s policies
 Affiliation agreement necessary to control
national’s intellectual property
 Separately incorporated chapters may be
included within national’s group tax
exemption
ANTITRUST LAW
DEVELOPMENTS

Class action certified against titanium
dioxide producers in price-fixing case
– Allegation that price increases corresponded
with trade association meeting dates
– Trail scheduled in federal court in Maryland for
September, 2013
ANTITRUST LAW
DEVELOPMENTS

FTC action against ductile iron pipe fitting
manufacturers still pending against 2
manufacturers
– Allegation that association facilitated
agreement to monopolize and fix prices through
the exchange of monthly sales and production
volume information
– One alleged co-conspirator settled
ANTITRUST LAW
DEVELOPMENTS

Heightened enforcement risk for trade and
professional associations in Canada
– 2 recent cases by Canadian Competition Bureau


Toronto Real Estate Board
Canadian Wireless Telecommunications Association
– Interim Commissioner of Competition remarks


Using standards to limit competition or raise barriers to entry
Using information exchanges to reduce incentives to compete
ANTITRUST LAW
DEVELOPMENTS

Issue for AMCs, particularly those managing trade
associations:
– Both private and government lawsuits are back
– Plaintiffs are looking at associations as fertile ground
for conspiracies
– Antitrust compliance policies more important than ever
– AMC staff must be aware of the law and of how to stop
a meeting if necessary
– Check APL insurance policy for antitrust sublimit
THANK YOU
C. Michael Deese
Howe & Hutton, Ltd.
1901 Pennsylvania Avenue, N.W.
Washington, DC 20006
(202) 466-7252
cmd@howehutton.com